The yoyo of British taxation is about to undertake a loop-the-loop
Taxes make our world go around and, whether they be of ‘value-added’ and duty types, or income-based, the days of relatively low percentage takes are about to be rejigged, states Iain Robertson, as we enter a long period of balancing the books.
We are all engaged in paying our dues. While The Beatles may have bemoaned the government’s tax take on the coins placed on the deceased’s eyes, discerning the difference between evasion and avoidance has been a preoccupation of the wealthy class. Of course, taxation is largely a voluntary gesture, although you will find it hard to believe.
Paying for the pandemic is the government’s current quest and it is by no means finished with its assault on the public. By how much income tax is going to be increased to fund furloughing and millions of pounds’ worth of company loans are already the subject of heated debate. One aspect is guaranteed, it is going to take years before borrowing is repaid.
It is suggested that, when the tobacco ban came into effect, somewhere in the region of £800m of tax take was ‘lost’; it is little wonder that the exchequer tries to leave alcohol alone as much as it can. While selling off national ‘assets’ has been a short-term means to an end, they cannot be replaced and renationalisation is a very costly move, even though some important controls are introduced.
While motorists have always claimed that the levels of tax they must pay are grossly unfair and that the combination of road tax and fuel revenues are little more than advantageous, in around eight years’ time, our government is going to ‘lose’ around £30bn in fuel duty alone, when the fossil fuel ban comes into effect. Naturally, the greatest impact will be felt by those motorists retaining their fossil fuelled motor vehicles, which are already mooted as being taxed out of existence in less than a decade. In fact, road tax earns the exchequer around £40bn annually, the equivalent of 5% of its total tax take, at around £750 per UK adult, but electric vehicles presently attract zero tax, as an incentive to make the change.
According to research carried out by ‘think tank’, The Social Market Foundation (SMF), public dislike of ‘unfair’ fuel and road taxes is now so high that people would prefer to see a new system of road pricing put in place instead. Its polling found that voters are now more likely to support road pricing, a long-time discussion topic, than oppose it.
Carried out by SMF and Opinium, both polling and focus groups exploring public attitudes to driving and tax are coinciding with department ministers drawing up fresh plans to fund roads in the era of electric vehicles, which do not incur fuel duty, the aforementioned £30bn provided to the Treasury every year. Despite hefty acquisition costs, whether from buying outright, or more likely leasing/renting at rates of around £800 per calendar month, the all-electric Tesla Model 3 became the best-selling car in the UK last month. However, ALL EVs are currently priced at around 25-35% costlier than their conventional equivalents.
The inevitable switch towards EVs is placing the government under extreme stress to find a new way of raising revenue from drivers.
The SMF research shows that conventional political wisdom (that voters are strongly opposed to road-pricing) is wrong, because consumers now dislike the current system of tax so much that they accept that pay-per-mile taxes could be a fairer system. Four in ten (38%) respondents now support using pricing as a replacement to existing road and fuel duties. However, crucially, only 26% said that they were opposed to the idea.
Intriguingly, the SMF found that support for road pricing was broadly consistent across all income groups and regions. Drivers were actually slightly more positive about the policy than non-drivers, with 40% of drivers in the SMF-Opinium poll supporting the introduction of road pricing. Yet, another 36% of respondents said that they neither supported nor opposed road-pricing, suggesting a significant cohort that might be open to persuasion.
Focus group work for the SMF research showed that the key driver of opinion around road pricing is the strong public perception that the current tax system is unfair. A clear majority of interviewees said that motoring taxes are a much heavier burden and significantly more unfair than other taxes, as the graphic shows.
The SMF stated its dislike of the existing system and relative support for road pricing should encourage ministers to begin exploring the means by which to design a fairer approach to motoring taxation, to bolster the public finances and ensure that driving better reflects negative costs like pollution and congestion. Of course, the government should consider carefully how it designs any future system of road pricing according to the SMF, with different options boosting and cutting public support accordingly.
A free milage allowance and using revenue to improve public transport infrastructure and the roads network would make a road pricing regime more appealing to the public. Reforms could also ensure that road pricing is fairer than fuel duty, reducing the burden on lower income households. 41% of respondents supported road pricing based on making an annual payment based on how much they drive every year. Opposition increased, when respondents were asked if they would accept a ‘black box’ in their vehicles, or a mobile app to track their mileage.
According to Scott Corfe, research director at the Social Market Foundation: “For too long politicians have thought of reforming motoring taxes as grasping the nettle, fearful that a backlash from drivers would hit them at the polls. Yet, in reality, the public wants to see a better, fairer system of how the UK government taxes motorists. Our research shows that road pricing, often perceived as politically poisonous, is perceived as a preferential option compared to our existing tax regime.”
Our country needs a system of road taxes fit for the 21st Century and the coming age of the electric vehicle. It is vital that ministers recognise how far public opinion has shifted on road pricing over the last two decades. Voters are unlikely to punish them for seeking an equitable reform of motor taxation, even though broader tax implications are sure to be hateful.
